In this article
Kooky
Builder of Shaka, the payment router that pays every agent their commission on closing date.
About Kooky and Shaka →The Reserve Bank of Australia published its October 2026 Financial Stability Review on Thursday 1 October, and the chapter on households carries a clear message for anyone with a home loan. Housing prices have declined in recent months after several years of strong growth, the RBA writes, and it estimates that less than 1 per cent of borrowers are in negative equity, meaning they owe more than their home is worth.
The review does not pretend the picture is comfortable. The central bank describes the downside risks to housing prices as elevated, and it reports small rises in both mortgage arrears and the share of borrowers whose income no longer covers their costs. What it finds, measure after measure, is that the pressure is concentrated in a small group and that most of that group still has savings to draw on. The ABC's business editor, Michael Janda, summed up the tone in his headline on the day: the RBA was relaxed about the housing downturn and deeply worried by AI and bonds.
Reserve Bank of Australia, Financial Stability Review, October 2026, chapter on the resilience of households and businesses.
What the review says about prices
The RBA gives three reasons for the turn in the housing market. It cites weaker sentiment, tighter monetary policy, and the changes to negative gearing and to the capital gains tax discount. The cash rate has risen by 100 basis points this year, according to the review, and that feeds directly into what a new buyer can borrow and what an existing borrower on a variable rate has to pay each month.
Other reporting on the same day fills in how the market looked as the review came out. The ABC reported on 1 October that Australian home prices had fallen for a sixth straight month. In that report, Tim Lawless said he expected values to keep falling into 2027 and treated a peak-to-trough drop of 10 to 15 per cent as a reasonable estimate. Shane Oliver, chief economist at AMP, told the ABC the downturn was already shaping up as the biggest in property prices in the last 40 years. He put the worst falls of the past few years at about 8 per cent from top to bottom, and gave a worst case of up to 20 per cent if the war involving Iran dragged on, oil prices rose sharply and jobs were lost.
Related readUAE central bank counts AED 15.9 billion of loans under payment reliefThose are the views of two commentators quoted by a broadcaster, not forecasts from the central bank. The review describes the risks on the downside as elevated, and then asks what a fall would do to the people who owe money against those homes.
Who is exposed to negative equity
Negative equity matters because it removes a borrower's easiest way out of trouble. A household that can no longer meet its repayments can usually sell, clear the loan and keep whatever is left. A household that owes more than the sale would raise cannot do that without finding the difference.
On the RBA's estimate, fewer than one borrower in a hundred is in that position today. The review names the borrowers most exposed: recent buyers, and people who borrowed a high share of the purchase price. The RBA counts participants in the 5% Deposit Scheme in that second group, since a buyer who starts with a deposit of 5 per cent has a thin cushion against any fall in value.
The review also tests what a uniform 20 per cent fall in prices would do to the share of mortgages in negative equity. This article does not report the result: the figure in the text of the chapter and the figure in the caption of the accompanying graph did not appear to agree, and the difference could not be settled before publication.
Arrears and cash-flow pressure
Falling prices are one test of a mortgage book. The other is whether borrowers can keep paying. Here the review uses a measure it calls cash-flow shortfall, which counts borrowers whose income falls short of what they have to pay out.
Related readHow much can you borrow for a home in the UAE, and what Dubai chargesThe RBA estimates that about 2 per cent of owner-occupier borrowers on variable rates are in shortfall, a share that rose a little in the first half of 2026. For those borrowers the median shortfall is about 6 per cent of income. The gap is real, but it is one that savings can bridge for a time, and the review finds that most of these borrowers could cover it for at least six months. Measured another way, borrowers in shortfall hold a median buffer worth more than a year of scheduled repayments at current rates. The RBA projects that the share in shortfall will peak well below the peak reached in 2024.
Arrears tell a similar story. The share of housing loans 90 days or more behind rose a little over the past year and sits around its level before the pandemic, according to the review. The path there was uneven: arrears rose from 2022 to 2024, fell through 2025 and rose slightly in the first half of 2026.
The review adds two softer signals from household budgets. Real disposable income per person fell slightly in the first half of 2026, though it remains above its level in 2023 and 2024. Enquiries to the National Debt Helpline rose modestly. Neither points to widespread distress, and both move in the direction a year of rate rises would suggest.
The very adverse scenario
The RBA then pushes the numbers much harder. Its very adverse scenario combines a sharp rise in unemployment with high inflation and a much higher cash rate, three things that each make a mortgage harder to pay.
Related readUS 30-year mortgage rate climbs to 7.40%, a fourth weekly rise| Measure | In the scenario | What it does to a borrower |
|---|---|---|
| Unemployment rate | 6.3% | More households lose income. |
| Inflation | 7% | Essential spending takes a larger share of pay. |
| Cash rate | 5.6% | Variable-rate repayments rise. |
| Mortgagors at higher risk of default | About 5% | Slightly above the 2023 peak. |
Reserve Bank of Australia, Financial Stability Review, October 2026. The scenario is a stress test, not a forecast.
The distance between that scenario and the present is wide. The ABC reported on 1 October that the unemployment rate now stands at 4.6 per cent. Even with every assumption applied at once, the review's estimate of borrowers at higher risk of default lands only slightly above the peak the RBA measured in 2023.
A stress test of this kind does not say what will happen. It shows how far conditions would have to worsen before a larger share of borrowers came under real strain, and in the RBA's estimate that share stays at about one mortgagor in twenty even then.
How lending rules limit the risk
Part of the reason, in the review's account, is how the loans were written in the first place. The RBA describes lending standards as sound and says housing credit growth is moderating.
Two rules set by the regulator APRA sit behind that. The first is the serviceability buffer. A lender must check that an applicant could still afford the loan at an interest rate 3 percentage points above the rate actually offered. The buffer was raised from 2.5 percentage points in late 2021, the review notes. It means that a borrower approved under the rule has already been tested against repayments well above the starting level.
The second rule is newer. APRA announced on 27 November 2025 that from 1 February 2026, lenders may write at most 20 per cent of their new owner-occupier lending, and at most 20 per cent of their new investor lending, at a debt-to-income ratio of six times or more. The review reports that new lending at high debt-to-income ratios is well below that 20 per cent limit, and that the limits are unlikely to bind at the level of the whole system.
Related readUS buyers turn to adjustable-rate mortgages as fixed rates pass 7%Three kinds of loan sit outside the debt-to-income limit
APRA exempts loans for the construction of new dwellings, loans for the purchase of newly erected dwellings, and bridging finance expected to be completed within 12 months. The limit is applied to each lender's new lending as a whole, not to a single application.
The review does record movement at the edges. The share of new lending on interest-only terms rose. Loans approved under exemptions from the usual serviceability test also rose slightly; the RBA recalls that these had spiked to about 5 per cent of new lending in late 2023.
Investors and affordability
Investors get their own passage. Lending to them has slowed after strong growth in 2025, the review says, and the RBA notes that investors could amplify a downturn by selling. Each extra sale adds to the homes on offer in a market where prices are already falling.
For buyers, the rate rises have changed the arithmetic. The ABC reported on 1 October that an average wage earner on A$109,000 can afford a property of about A$500,000, against average prices of around A$900,000, and that this earner's borrowing capacity has fallen by about A$45,000 since January, after four rate rises. The same report put the national vacancy rate at 2 per cent, the highest since January 2025.
Shane Oliver also described to the ABC what a deeper fall would mean beyond housing. A fall of more than 15 per cent would raise the risk of recession, in his view, and a fall of 20 per cent would cut consumer spending by about 2 per cent.
What comes next
APRA has kept its macroprudential settings unchanged, with the RBA's support, according to the review. The serviceability buffer stays at 3 percentage points and the debt-to-income limits stay as they are. The Council of Financial Regulators will monitor lending practices.
The next date in the calendar is the RBA's interest rate decision on Tuesday 3 November 2026. The ABC reported that comments by the Governor, Michele Bullock, on 29 September were read as lowering the odds of a rise at that meeting. Shane Oliver told the ABC he expects the RBA to hold in November but sees a high risk of one more increase.
A home loan becomes a problem when the repayments cannot be met and the sale would not clear the debt. The review finds few borrowers facing both.
Kooky, from Shaka
Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.
